Fixed-rate mortgages are up 166% since the start of the year as base rates rise

Average two-year fixed mortgage rates are now 2 percentage points higher than at the start of the year, raising typical monthly payments by an average of £159.

The average two-year home loan rose to 3.46 percent, while the five-year fixed rate rose to 3.5 percent, according to an analysis by L&C Mortgages.

The same numbers in January were just 1.3 percent and 1.55 percent respectively. In a two-year solution, that represents an increase of 166 percent.

A borrower who takes a typical mortgage payment of £150,000 over 25 years at the two-year average rate will now face £159 more monthly payments than at the start of the year. This is an annual increase of over £1,900 compared to January.

Rate hikes: Mortgage rates have been rising, which means potential pain for homeowners

The Bank of England is expected to raise interest rates from 1.25 percent to 1.75 percent later today and will do nothing to assuage borrowers’ fears.

The base rate has risen from 0.1 percent in November to 1.25 percent. Lenders often pass these increases on to their customers.

If it rises as expected, it will be at the highest levels since 2008, when the central bank slashed rates amid the global financial crisis.

The base rate hike is an effort by the bank to tackle inflation, which is now forecast to hit 15 percent by the end of the year.

In addition to new borrowers, rising interest rates will affect homeowners looking to remortgage.

Two years ago, in early August 2020, borrowers could have taken a two-year rate with Coventry Building Society at an interest rate of 1.3 per cent at 75 per cent LTV, plus a low fee of £999.

Taking a £225,000 mortgage on £300,000 over 25 years on this deal, they would have had monthly payments of £878.87.

If they now re-mortgage at the current first-two-year ten-year average at 3.46 per cent, the monthly payments on a remaining balance of £209,566 over the remaining 23 years would be £1,102.11 per month, £223 more than their original agreement.

David Hollingworth, Associate Director of L&C Mortgages, said: ‘The mortgage landscape continues to change rapidly as lenders balance volatile financing conditions and service levels, forcing frequent changes in mortgage products.

“As a result, mortgage borrowers are facing increased payments, either as a result of base rate increases or because the protection of their current fixed contract is coming to an end.

‘As borrowers brace for another base rate hike this week, many are unsurprisingly seeking the refuge of a fixed rate.

“That offers monthly savings as well as creating payment security for households already feeling the pinch of other cost-of-living increases.”

In recognition of the risk, Hollingworth notes that many borrowers are seeking a new deal as soon as possible to secure lower rates.

And lenders are responding. Homeowners can check how much they would have to pay to fix it now with This is Money’s best mortgage rate comparison calculator created with partner L&C.

Raymond Boulger, senior technical manager for mortgages at John Charcol, says lenders are extending the maximum term for product transfers in a bid to keep existing customers.

‘It means that for borrowers looking to re-mortgage, their provider may allow them to sign a new agreement before the limit of their agreement, traditionally three to four months before the end of the plan, allowing them to lock in a lower interest rate. before the expected future. rises

‘It is relevant that many lenders currently have lower product transfer rates than the rates they offer for new business.

‘It costs less to retain a customer than it does to attract a new one, and particularly at the moment, with many lenders’ service levels suboptimal, there is a strong incentive to keep existing customers rather than have than replacing them with new ones, which is much more time-consuming,’ he says.

Interest rates on 2-year fixed-rate mortgages have risen 2% since January, putting additional pressure on borrowers

Interest rates on 2-year fixed-rate mortgages have risen 2% since January, putting additional pressure on borrowers

Others warn that lenders are also updating the rates they offer with alarming speed.

Ashley Thomas, director of mortgage broker Magni Finance, said: ‘Lenders are now raising rates and retiring existing products much faster.

‘Where before we were given at least a day’s notice, now it is reduced to a few hours in some cases.

‘For example, a lender sent an email yesterday at 4:30 pm stating that they were changing their existing rates at the end of the day.

“This makes it very difficult to get a mortgage, so I would advise people to move as quickly as possible.”

The Bank of England is expected to raise rates again this month

The Bank of England is expected to raise rates again this month

Other brokers, including Boulger, are reporting a significant slowdown in the time it takes banks to process applications as they become overwhelmed with requests from borrowers trying to get ahead of future rate increases.

This, he says, has been the case for a few weeks.

Rhys Schofield, managing director of mortgage company Peak Money, says: ‘One caveat would be Nationwide, normally very good and competitively priced, which currently takes nine business days just to verify a payment receipt or appraisal report.

“That’s pretty widespread right now because lenders are just struggling to keep up and the only way they can turn off the spigots is to change rates.”

Nationwide said: ‘Our current average lead times are what we would expect given the high demand we are seeing in the market.

“We update the deadlines on our website daily so everyone has an up-to-date overview of how long your application may take.”

Boulger adds that gilts (fixed-yield government bonds that are particularly sensitive to changes in interest rates) have had a volatile few months, swinging both ways.

The 10-year gilt yield peaked at 2.62% 6 weeks ago and is 0.7 percentage points lower than 1.92% at the time of writing.

“The fact that many lenders are struggling with the service means they have little incentive to lower rates to reflect the drop in financing costs, as the increase in business a lender would see by becoming more competitive would simply exacerbate their problems. of service,” he says.

The best mortgage rates and how to find them

Mortgage rates have risen substantially as the Bank of England base rate has risen rapidly.

If you’re thinking about buying your first home, moving or remortgaging, or are a buy-to-let landlord, it’s important to get good, independent mortgage advice from a broker who can help you find the best deal.

To help our readers find the best mortgage, This is Money has partnered with independent broker L&C.

Our L&C-powered mortgage calculator can allow you to filter offers to see which ones best match your home value and deposit level.

You can also compare different fixed-rate mortgage durations, from two-year arrangements to five-year arrangements to ten-year arrangements, with monthly and total costs displayed.

Use the tool at the link below to compare the best deals, taking both fees and rates into account. You can also start an online application on your own time and save it as you go.

> Compare the best mortgage deals available now

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